The London Metal Exchange is aiming to reach 10 million mt of ferrous scrap CFR Turkey futures traded volumes and 2.5 million mt of FOB Turkey steel rebars futures traded volumes in 2023, Alberto Xodo, LME's vice president-sales, said Oct. 27 during the LME Focus Day event.

 

The two contracts have gained momentum on high volatility in the physical market that attracted greater futures interest.

 

The LME is predicting that scrap CFR Turkey futures contracts, which settle against the monthly average of Platts physical assessment, will end 2022 with 4.5 million mt of volumes traded following a post-pandemic rebound. The LME CFR Turkey scrap futures contract has seen its highest annual trading volumes since 2018, with 3.5 million mt traded in the year to Oct. 26.

 

Platts is part of S&P Global Commodity Insights.

 

In 2021, annual volumes fell to 2.7 million mt, the lowest point since the contracts were launched in November 2015.

 

"Since launch in November 2015, the LME steel scrap contract traded almost 21 million mt," Xodo told S&P Global on the sidelines of the event. "This year, average daily volumes for steel scrap CFR Turkey have grown 52% over the same period in 2021 as the industry clearly wants a transparent tool to manage price risk."

 

Annual volumes traded for the LME steel rebar futures contract, which settles against the monthly average of Platts FOB Turkey rebar assessment, are also expected to register an increase, with average daily volumes up 70% since its launch in 2015.

 

Over Jan. 1-Oct. 26, the LME FOB Turkey rebar contract already recorded a record annual trading volume of 849,460 mt.

 

The next highest annual volume was in 2017 when 644,300 mt was traded.

 

To reach the new trading targets, the LME will introduce a series of initiatives on Nov. 1 to build its liquidity on screen.

 

'Room for growth'

During a panel discussion, panelists and industry sources on the sidelines of the event agreed that such ambitious targets could be reached as there is room for growth in ferrous contracts, in particular for a key raw material such as scrap, which will continue to be needed in the long term.

 

"On the LME aluminum futures contract, trading volumes are about 25 times higher than the physical market, and in the oil markets, futures trading volumes are about eight times higher than the physical market, but, right now, in the steel and scrap market, the traded futures volumes are less than 1% of the current physical market volume – so the potential for growth in ferrous futures is huge," Kerry Deal, head of business development at broker Freight Investor Services, said during the panel discussion.

 

Kourosh Khojasteh, head of derivatives at M7 Metals, said during the panel: "The demand for scrap will become more and more relevant with more and more blast furnaces that are being replaced with electric arc furnaces that will use scrap as key element, so I am positive on the demand side."

 

Marco Miccichè, CEO of Eusider Trading, also on the panel, underlined the need for hedging and indexation in particular in a market "with steep ups and downs."

 

Scrap prices have been volatile, with Platts premium HMS 1/2 (80:20) CFR Turkey assessment falling to a four-year low of $207/mt in early April 2020 due to the coronavirus pandemic, then rising in January 2021 to above $450/mt thanks to strong mill demand and COVID-19 vaccine news.

 

Prices then tumbled again in October 2021 on uncertain steel demand, before rising on concerns over energy costs and low supply at the end of 2021.

 

Platts assessed Turkish imports of premium heavy melting scrap 1/2 (80:20) at $359/mt CFR on Oct. 25, unchanged from Oct. 24.